What is IR35?
HMRC has been described by some as being focused on eradicating tax avoidance from limited companies and umbrella companies being used to disguise employees as locum workers.
The way in which individuals falling within the Intermediaries Legislation, known as IR35, is reported in the public sector has been recently changed, which has had consequences for some locum doctors working for a public-sector body.
It is therefore important to understand a little bit about whether you are in or outside of IR35 to ensure you have, and continue to pay, the correct amount of tax – to avoid any nasty surprises to your take home pay.
Previously, locum doctors would have been required to tell HMRC that they were inside IR35, which would have meant paying employee level tax and national insurance rates. However, a change made in April 2017 meant that the onus was on the public-sector client, agency or third party that pays contractors their fees.
Do you fall into IR35?
IR35 legislation is not well defined in relation to what circumstances would define you as falling into IR35. If you contract work through an agency or through a limited company, then it is important to check if you fall into IR35 legislation. The British Medical Association has published some guidance on how HRMC assesses whether your locum working status falls into IR35 here.
This shift in liability for declaring whether a contractor falls into IR35 status currently only applies to the public sector, which affects work in NHS trusts. At the time of writing, this does not yet affect the private sector.
What happens if I fall into IR35?
By falling in to IR35 means that it will affect your rate of pay which will be reduced as tax and NI contributions will be deducted by the client you are providing services for, at standard employment rates. Unfortunately, despite paying what is likely to be a significant increase in tax, you will still not receive the protective benefits of a standard employee. It is advised that you seek professional advice to help determine your current status in relation to IR35.
Clearly, it is important to understand IR35 and how the changes in responsibility to declare this in the public sector may affect your rate of tax. It is also important to understand these changes as HMRC could be rolling out the changes to the private sector, which may affect doctors who are currently outside IR35.
As a Gorilla Accounting client, we will be able to put you in touch with a specialist IR35 advisory firm. Get in touch with your accountant or call our New Business team on 0330 024 0406.